With looming budget cuts, the constant demand to do more with less, and the trickle-down effect of budget deficits at the state and federal levels, small governments are struggling to meet constituent demands. When resources are scarce, governments often apply budget cuts to programs that lack direct public value—training, human resources (HR), and other administrative overhead. Today’s fiscal reality forces government administrators to take a hard look at spending and focus only on services that contribute directly to the strategic development of the organization. But can cutting important functions like HR cost your government more in the long run?
A small municipality hires Baker Tilly to help with HR challenges
A city government with a population of 4,000 recently hired Baker Tilly’s State and Local Government consulting team to assist with their HR difficulties. In this particular situation, the government lacked a dedicated HR function and, as a result, HR responsibilities became a component of city manager’s duties. Over time, this arrangement caused concern among the board, management, and staff that there was not enough direct HR experience on hand. The city encountered the following challenges:
- Fostering strong employee relationships: A dedicated HR function helps bridge the communication gap between employees and management, providing employees the opportunity to release their frustrations and report wrongdoings. These functions also help reduce stress on the employee/employer relationship.
- Increased risk exposure: While in the near term eliminating the HR function can save money, over the long haul the lack of a dedicated HR function can expose the organization to substantial risk due to noncompliance with state and/or federal HR regulations. Proper training on interviewing techniques and handling sensitive workforce issues like sexual harassment are essential.
Similar to many state and local governments, with this client’s tight budget adding additional staff was a challenging proposition. However, there are multiple methods to achieve a dedicated HR function. The following are three alternative options Baker Tilly consultants presented on this client engagement:
- Consider a shared service arrangement: Consider a shared service arrangement with another local government entity—a nearby municipality, a school district, etc.—to share the cost of the HR function and achieve a more balanced HR structure.
- Outsource HR functions: Outsource HR activities to a third party provider.
- Continue, but improve, decentralized operations: While not ideal, continue operating in a decentralized manner, but take the following actions to minimize risk and build stronger relationships with staff:
- Delegate HR duties to managers, but first provide training and give them the authority to make personnel decisions. Provide continuous training to keep management abreast of changes in rules and regulations.
- Develop consistent HR systems and policies for all employees.
- Hire outside expertise to brief management on changing regulations that affect your organization and the appropriate response.
- Hire outside expertise to handle sensitive workforce issues like sexual harassment.
- Develop a system of addressing workforce issues quickly to minimize stress on the management team, opportunity for error, and risk of lawsuits.
Operating without HR services can cost more in the end
The recommendations Baker Tilly consultants made to this client reflected current fiscal and political realities of the city’s specific situation. We further evaluated the organization’s risk and the likeliness of legal action without dedicated HR expertise on hand. While not having access to specialized HR expertise may help your organization’s budget in the short term, the costs associated with increased risk exposure due to regulatory noncompliance and potential legal action could be unpredictable.
For more information on this topic, or to learn how Baker Tilly state and local government specialists can help, contact our team.